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Networks can help in a flat market

It is becoming apparent that a combination of high consumer debt and rising interest rates are leading to a flatter housing market.

Having survived the regulatory strain of 2005, many networks were given a new lease of life and some a stay of execution with the buoyant market in 2006.

Many commentators even suggest that this strong market slowed the consolidation of networks. It is probably true that last year the market allowed some of these firms to build almost sustainable businesses.

But what impact will a relatively flat market or even a downturn have, and what are the im-plications for brokers?

From networks’ perspective, it is vital that they continue to invest in processes to ensure they retain regulatory control. This is as important to their members as it is to them.

Capital adequacy is becoming a hot topic and financial strength must be demonstrated for customer protection. If the Financial Services Authority decides to tighten up capital adequacy requirements, it could have a big impact on the directly authorised market too.

Rightly, appointed representatives expect their networks to provide high quality training and development support. This will be even more important in a tighter market. In such conditions, ARs will look to networks to support their business diversification and this will allow them to develop new income streams.

Finally, a flatter market will mean it is im-portant that networks have economies of scale and efficient technology solutions. If they don’t have these things in place they are unlikely to survive.

And this will be a critical time for directly authorised firms too, especially as the regulator has made it clear that size doesn’t matter when it comes to abiding by its principles. DA brokers will be expected to demonstrate the compliance controls they have in place. As a broker, you should choose a strong network partner with a proven record and financial strength. In a tough market, it is important to know a network’s business approach and its record on training and development.

Have its existing firms been growing and if so, at what rate? Is it investing in technology? What is the cost of switching? Will you be locked in? Does it deliver exclusives? Does it offer choice in packagers or general insurance providers? What is its reputation? Does it have economies of scale? Also, look at the proc fees being paid and what the charges are for compliance services.

These are just some of the questions you must ensure you get satisfactory answers to. In a flatter market, your livelihood might depend on it.

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